Securities Industry Essentials (SIE) ExamUnderstanding Trading, Customer Accounts, and Prohibited ActivitiesMedium
A client places an order to sell 500 shares of ABC stock at $75.00 stop, limit $74.50. After the order is placed, the stock trades at $75.10, then $75.00, then $74.90, then $74.40. At what price, if any, will the order be executed?
- A$74.90
- B$75.10
- CThe order will not be executed.
- D$74.40
Show answer & explanationAnswer & explanation
Correct answer: D. $74.40
A stop-limit order becomes a limit order once the stop price is triggered. The stop price of $75.00 was triggered when the stock traded at $75.00. The order then became a limit order to sell at $74.50 or better. The next trade at $74.40 is below the limit price, so the order would be executed at $74.40.
Why the other options are wrong
- A. This price is below the stop price but above the limit price. Execution would occur at the first price at or below the limit after triggering.
- B. This price is above the stop price, but the order is a stop-limit, not a market order.
- C. The order is triggered and can be executed if the price meets the limit condition.
Sell Stop-Limit Order
A sell stop-limit order has two prices: a stop price and a limit price. Once the stock trades at or below the stop price, the order becomes a limit order to sell at the limit price or better (higher).
- Stop price triggers the order.
- Limit price sets the minimum acceptable selling price.
- Execution occurs at the limit price or higher once triggered.
Memory trick: Stop-Limit: Trigger and then set a price floor.